HAYW: A Resilient Play on Margin Expansion and Aftermarket Demand in a Discretionary Slowdown

In an economic climate marked by cautious consumer spending and a softening of discretionary demand, Hayward Holdings, Inc. (NYSE: HAYW) stands out as a compelling case study in resilience. The company's ability to leverage operational efficiency, pricing power, and secular tailwinds in the outdoor living sector has positioned it as a defensive yet growth-oriented play. With a refined 2025 guidance and a balance sheet primed for reinvestment, HAYW offers investors a unique opportunity to capitalize on margin expansion and a durable aftermarket model.

Operational Efficiency: The Engine of Margin Expansion

Hayward's Q2 2025 results underscore its mastery of cost discipline and pricing power. Despite a 14% rise in SG&A expenses—driven by wage inflation and strategic investments in customer care—the company achieved a 9% year-over-year increase in gross profit to $157.8 million. This was fueled by price optimization and operational efficiencies, including lean manufacturing practices and supply chain rationalization. The gross margin of 52.7% reflects a 170-basis-point expansion, a testament to the company's ability to absorb inflationary pressures while maintaining profitability.

The key to this success lies in Hayward's vertically integrated production model and its focus on high-margin, technology-driven products. For instance, its IoT-enabled SmartPad™ system not only commands premium pricing but also reduces long-term service costs by enabling predictive maintenance. As demonstrate, the company has consistently outperformed peers in margin resilience, even during periods of macroeconomic stress.

Aftermarket Demand: A Recurring Revenue Moat

Hayward's business model is anchored by its 85% aftermarket sales mix, a structural advantage in a discretionary slowdown. The company's installed base of pools—estimated at over 100 million globally—creates a flywheel effect: as the base grows, so does the demand for replacement parts, upgrades, and smart technology integrations. This dynamic is amplified by the ChlorKing acquisition, which added a robust portfolio of chemical dosing systems to Hayward's North American offerings.

The aftermarket's durability is further supported by the sunbelt migration trend, with U.S. states like Texas, Florida, and Arizona seeing record population growth. These regions, where pool ownership is a cultural norm, drive consistent demand for Hayward's products. Meanwhile, the company's multi-channel distribution strategy—spanning retail, wholesale, and direct-to-consumer—ensures it captures market share across all customer segments.

Secular Tailwinds: Smart Tech and Sustainability

Hayward's innovation pipeline aligns with two of the most powerful secular trends in outdoor living: smart home integration and sustainability. Its SmartPad™ platform, which connects pool equipment to a centralized control system, taps into the $150 billion global smart home market. This technology not only enhances user experience but also creates a sticky ecosystem that discourages customer churn.

Simultaneously, the company's focus on energy-efficient products—such as variable-speed pumps and solar-powered heaters—positions it to benefit from regulatory shifts and consumer preferences for eco-friendly solutions. With governments worldwide incentivizing green infrastructure, Hayward's R&D investments are likely to yield long-term competitive advantages.

Balance Sheet Strength and Strategic Flexibility

Hayward's financial discipline is another pillar of its investment case. The company's net leverage ratio of 2.1x, the lowest in over three years, reflects a deleveraged balance sheet and $365.1 million in cash reserves. This liquidity provides flexibility to fund strategic acquisitions, accelerate share repurchases, or invest in R&D. The recent voluntary repayment of its Incremental Term Loan B, coupled with a 19% decline in interest expenses, further strengthens its capital structure.

shows a resilient trajectory, outperforming the broader market despite a challenging macroeconomic environment. With a forward P/E ratio of 14x and a P/EBITDA of 10x, the stock appears undervalued relative to its cash flow generation and growth prospects.

Investment Thesis: A Bullish Case for HAYW

For investors seeking exposure to a company that thrives in both expansionary and contractionary cycles, HAYW offers a compelling risk-reward profile. Its pricing power, margin resilience, and structural growth drivers in the outdoor living sector create a durable competitive moat. While near-term headwinds—such as a potential slowdown in new pool construction—exist, the aftermarket's recurring revenue model and the company's operational excellence mitigate these risks.

Recommendation: Buy HAYW for a medium-term horizon, targeting a 12-18 month holding period. Key catalysts include the rollout of new IoT-enabled products, further margin expansion, and potential M&A activity. A stop-loss at $35 per share (20% below current levels) would protect against unforeseen macroeconomic shocks.

In a world where discretionary spending is under pressure, Hayward's ability to turn a $100 billion outdoor living market into a high-margin, recurring revenue engine is a rare and valuable asset. For those willing to bet on innovation and operational grit, HAYW is a stock worth watching.